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Strategies for Competitive Advantage
Cole Ehmke, M.S.
Extension Educator, Department of Agricultural and Applied Economics University of Wyoming
Overview A competitive advantage is an advantage gained over competitors by offering customers greater value, either through lower prices or by providing additional benefits and service that justify similar, or possibly higher, prices. For growers and producers involved in niche marketing, finding and nurturing a competitive advantage can mean increased profit and a venture that is sustainable and successful over the long term. This fact sheet looks at what defines competitive advantage and discusses strategies to consider when building a competitive advantage, as well as ways to assess the competitive advantage of a venture. The Essence of Competitive Advantage To begin, it may be helpful to take a more in-depth look at what it means to have a competitive advantage: an edge over the competition. Essentially a competitive advantage answers the question, “Why should the customer purchase from this operation rather than the competition?” For some ventures, particularly those in markets where the products or services are less differentiated, answering this question can be difficult. A key point to understand is that a venture that has customers has customers for a reason. Successfully growing a business is often dependent upon a strong competitive edge that gradually builds a core of loyal customers, which can be expanded over time. Producers and suppliers familiar with farming and ranching may know that successful ventures in the agriculture industry have typically operated in a commoditized, price-driven market, where all parties produce essentially the same product. Such conditions imply that the ultimate “winners” are the most cost-efficient producers, meaning that agricultural producers have historically relied on strategies that focused on lower costs and higher volumes (i.e. a bushel of hard red winter wheat is assumed to be of similar quality across the entire high plains region, meaning each bushel is assumed to be of the same value; so there is an incentive for producers to keep prices low and volume high). With the advent of product differentiation and niche and direct marketing, that reality has changed, and now there are niche markets in which both individual and wholesale buyers are looking for products with very specific characteristics or special services. These characteristics often use strategies that don’t focus on costs and volumes exclusively; rather the product or service may be of premium quality, be differentiated from other products and services available in the market (such as organic, natural, or humane production), or have a value-added component (i.e. flavored meats, pre-washed salad mixes, etc.). Successful ventures perform a combination of business activities well, including marketing, production, distribution, finance, customer service, and/or other activities important to the enterprise. However, a competitive advantage is often a single key element that gives an edge to a business beyond what the competition has or does.
6. 10. a manager needs to identify those activities at which the management and the venture excel. The experience and skills of the top managers. A product that is at least a cut above the competition and service that doesn’t get in the way of people buying. suppliers and partners fairly and respectfully. 5. There must be a compelling reason to buy. the product is great. 8.1. Keeping costs lower than competitors’ and continuing to look for cost reductions even when the business is profitable is key. The maturity to treat employees. Potential Strategies for Differentiation The following strategies may be helpful in differentiating a product or service from those of the competition. It comes down to your customers’ perception of the value of your product and sometimes the power of your personality. the buying experience is easy and fun. It is important to keep in mind that a venture’s most effective differentiationthe one that will bring the venture the most success-will likely come from just one or two strategies. Over half of business failures are directly related to managerial incompetence. A steady source of business during both good economic times and downturns. Studies have shown it can take seeing your product or name seven times before a customer is ready to buy. Don’t give up. Deal-making skills to sell the product at the highest possible price given your market. The ability to keep developing new products to retain and build a customer base. develop a product mix that will include winners during good economic times and other winners when times are tough. 9. Deal-making skills to work with resource suppliers to keep costs low. The ability to create a “buzz” around the product with aggressive and strategic marketing. the people love to provide service. 2. Superior location and/or promotion creating a connection between your product and where it can be obtained. 3. 5-2 . (King. Do as much homework about your customers and their choices as you can before investing your marketing dollars. persistence and resourcefulness (the will to make the business succeed) of the top managers. 4. 7. 2005) Mastery of that single key element often provides marketers with a distinct niche in the marketplace and may lead to the creation of a competitive advantage that serves to establish or preserve success. Energy. etc. Make scarce marketing resources count. To be successful in this environment. Over the long term. Consider gradual product development based on improvements to the current product line and sold to the current customer base. Many business owners have failed or come close several times before their “instant” success. not just activities in which they perform equally well with the competition. Trust and respect result in productivity increases in ways that may be difficult to see and quantify.
Ways to achieve a fundamental cost advantage might be through lower overhead or shipping costs (perhaps through geographic closeness to markets). Customer Incentive Programs Does the venture employ programs to attract new and repeat customers through efforts such as giveaways. A good marketing strategy can be enough to differentiate one 5-3 . and/or volume discounts? Guarantees and Warranties If the venture is conveying to customers that it provides a quality product. others usually follow.Product Features and Benefits What makes the product unique and desired? Consider product characteristics such as style. cheaper labor. if the one provided is not as attractive? Staff Consider the factors which ensure that front and managerial staff produce a good product and provide a positive customer experience. and even product selection. sales. on which customers can rely? Operating Procedures What policies. convenient. such as marketing. production methods (such as natural or organic). taste. If this is the case. handling. promotions. would it be possible for the venture to partner with someone who has a better location. and/or low-priced raw materials (perhaps through long-term purchase agreements). Are the product characteristics significantly different from those of currently available products? Can the venture provide these features or benefits effectively? Location(s) What about the venture’s location is a draw to customers? The office or store location is often a very important factor. in a farmer’s market setting. thus erasing whatever advantage the first competitor gained by reducing prices. and standards could be employed to smooth operations. particularly for ventures selling directly to the public. coupons. create value. quality ingredients. processes. comfort. preferably in an area near customer traffic. meaning that when one competitor cuts price. Location should be chosen with care. certification and so on. product distribution (such as mail order/Internet versus roadside stand). is the booth located in a visible. is that perception reinforced with guarantees and warranties? Brand Name Recognition A carefully conceived and executed marketing plan with a focus on the customer is a major contribution to business success. and accessible place? Being tied to an existing location will directly influence other decisions. For example. Does the venture’s personnel follow these factors? Do they act professionally? Do they have expertise with the product. and offer a positive customer experience? Price What fundamental cost advantage does the venture have which would justify permanently low prices? Most ventures operating in the same industry in a location will tend to have pretty much the same cost structure.
Location. common weather resources are wind. Brand name recognition is reliant upon a good marketing strategy and a consistent. with sweet corn. rain. and Wetlands Are there sufficient water resources available to produce a product which might not typically be produced in the region? Is it possible to differentiate the venture to consumers by performing good stewardship of the venture’s water resources? Weather Is the weather conducive to producing and selling the product or service? For instance. Buildings. Extended Growing/Operating Season Is the venture’s product available before or after competitors’ products? For instance. While in a small geographic area these same resources would be available to all competitors. all other things being equal. is it the first available of the season? Soils. or is livestock available for a petting zoo or for rides? For more traditional operations. such as free installation or delivery. and Landscape Do the physical facilities and resources of the venture contribute to the quality of what is being produced and sold? Water. Access to Irrigation. can the venture’s location support the plants and animals that are intended for use? Can the venture offer a unique heirloom variety or exotic breed with potential benefits? Organization and Alliances Does the venture have unique alliances or sources of supply? Some ventures are able to pool resources to provide a unique offering. and sun. Ventures who do not have the resources available to market themselves as their own brand may want to consider joining an alliance or cooperative to market their product under a recognizable brand name.business from the rest. a venture that is trying to compete in a larger geographic area may face competition from producers located in an entirely different region. then what wildlife can be supported? For example. Plants and Animals If the venture is agritourism-based. 5-4 . such as through a cooperative. who are exposed to different weather resources. reliable product and venture. Goodwill Is the business venture recognized within the community as a contributor and a valuable member? Value-Added Products/Services Does the venture offer a further service or more developed product? These value-added aspects may often be free with the purchase of a product. can the agritourism venture involve bird watching.
even though the resources may not initially be recognized. quality may be related to the fact that the product being offered is of a higher physical quality than the competitor’s product. This connection can be strengthened through identifying with the farmer/rancher or visiting the farm/ranch (or the website and making a connection there). which of these resources are already available and which does the venture need to obtain in order to focus one or more of the strategies? Clarify Goals Has a clear idea of what the venture seeks to accomplish been established? Businesses with specific and achievable goals tend to have better and more consistent growth. it may be worthwhile to perform a comprehensive evaluation of the business’ goals and how it might fit into the market. the characteristics of those customers can be examined in an effort to identify commonalities. This may help the venture to learn about what features customers need and what they will pay for. there are many research sources available through 5-5 . Additionally. When developing a hypothesis about what potential customers will buy. some consumers needed a pre-washed and mixed salad alternative. as well as through educational resources such as recipes and information about the history of and people associated with the farm or ranch (the “farm/ranch story”). but realistic goals should be written out to help clarify what the business will do for itself and its customers in the future. What does the venture have that could be used as an advantage? Reading through the potential options for competitive advantage above. Evaluate Resources The basis for a competitive advantage often lies in the resources and abilities that are already available. such as obtaining third party certification for organics. These goals will become benchmarks for success and will help maintain focus among all involved parties. rather than bunches of greens that needed to rinsed and spin-dried. etc. For instance. so an important consideration for any venture is how quality is going to be perceived and measured. Once the needs and wants of the potential customers have been established. kosher production. Define Customers Determining the products and services customers want and cannot get from the competition is a first step toward defining the business’ potential customers. the development of salad mixes came from the realization that for convenience. Successful ventures offer consistent quality. Challenging. and provides an opportunity to ask them for additional suggestions.Customer Experience Providing customers with additional information about the farm/ranch is a way for clients to connect to the physical operation. speaking to potential customers will provide an understanding of their needs. In some cases quality may be related to value-added strategies. Competitive Advantage Evaluation Process When a business is just starting out. In other cases. Quality With all of the above potential sources of competitive advantage. or from providing excellent customer service. Begin by taking a critical look at the existing resources and product/service offerings. quality is an underlying factor.
a venture selling fresh produce in a farmers’ market would have direct competition from other vendors at the market.publicly available sources (see the “Resources” section of this fact sheet). 5-6 . This will provide more insight as to where the venture’s competitive advantage lies. Over time the edge may erode as competitors try to duplicate a successful advantage for themselves and as the market changes. while the indirect competitor would be grocery stores in the same area. questionnaires. Once the competition has been identified. and can the business take advantage of them? “Building sustainable competitive advantages revolves around differentiating a product from the competition along attributes that are important and relevant to customers. and the strategies of the competition. “Conducting Market Research Using Primary Data” in this publication). while the other half is maintaining it. Key questions to address include: • Are the business and the target market clearly defined? • Who is/are the business’ competitors? • What is the business’ specific strategy for success? • Are the competition’s moves being tracked regularly? • Is the business taking advantage of the competition’s weaknesses and/or any competitive opportunities? • What has been learned from the competition’s mistakes/strengths? • How do the business’ prices and products compare with the rest of the industry? • Who are the customers? Does the business have (or can it build) a loyal base? • Are the employees trained in customer service? • What trends are ahead. and observation (for examples. it is important to take a look at other ventures that might be targeting the same market.” (Barone and DeCarlo. Examine Competitors With an understanding of what customers want and an idea of how this can be provided. First. focus groups. the product/service the business has developed. look at the direct competition. and devising a strategy to make use of the resources that are available (or can be obtained) to set the business apart from the competition. the business’ strengths and weaknesses. the business’ goals. For example. The strategy will need to take into account the target market. compare the strengths and weaknesses of the competition to the strengths and weaknesses of the venture. Make Sense of it All In the end. please see fact sheet WEMC FS#7-08. Half the battle is establishing the competitive edge. and venture-specific research can be organized through surveys. Continual analysis of the venture’s product offering and management will help the venture to stay current with the situation. 2003) Keeping the Edge Sharp Competitive advantages don’t tend to stay competitive advantages without significant effort. building a competitive advantage will involve understanding the needs of the market (customers). Such research can help the venture to be sure that there is a large enough market for the product/service.
Sustainable Agriculture Research and Education (SARE) is supported by USDA and CREES.ncat. reports.Resources The following resources are a brief overview of agencies and organizations that may be helpful in building or strengthening a competitive advantage.umn. ranchers.agmrc.edu. which is a multi-state organization dedicated to providing information to farmers. research. assist. Small Business Administration (SBA) is an independent federal agency created to aid. The website provides information about commodities and products. while information about NCAT can be found at www. business creation and operation. and protect the interests of small business concerns. market and industry trends. and links to other agriculture information sites. This effort is managed by the National Center for Appropriate Technology (NCAT) and funded under a grant from the USDA's Rural Business-Cooperative Service. links to data. This group is funded by the Cooperative State Research. and value-added resources. ATTRA can be found on the Internet at www. counsel.agrisk. Information about value-added agriculture can be found at USDA’s Agricultural Marketing Resource Center website.rurdev.org. research results. NAL’s online resources can be found at www.org. while questions can be directed to the SBA Answer Desk at 1-800-U-ASK-SBA (1-800-827-5722).sba. SARE’s website provides information about sustainable agriculture. The goal of SARE is to provide grants and information to improve profitability. and quality of life. and information about available grants and the grant application process.usda.usda. at www. SARE can be found online at www. Education. Extension agents. 5-7 . USDA’s Rural Business Cooperative Service is online at www.S.org. or by calling 1-800-346-9140.gov/rbs/.sare. The U. and a directory of individual state offices is available at 1-800-6706553. as well as to preserve free competitive enterprise and to maintain and strengthen the overall economy.org or at 1-800-ASK-NCAT (1-800-275-6228). and publications.attra. and Extension Service (CREES). and others. More information on the SBA can be found online at www.gov. The Digital Center for Risk Management Education provides an online budget library at www.nal. stewardship. The National Agricultural Library (NAL) of the USDA seeks to advance access to global information for agriculture. and features a resource where users can ask questions of the library’s professional reference staff. NAL online provides access to agriculture-related news articles. Appropriate Technology Transfer to Rural Areas (ATTRA) provides a National Sustainable Agriculture Information Service.gov.
(2005). DeCarlo (2003). Agritainment: providing the public with fun on-farm or on-ranch activities. mazes. marketing. for-fee fishing or hunting.Alternative enterprising can mean marketing an existing product differently. 5-8 . stargazing. to hunting and fishing.gov/Economics/AltEnterprise/FirstSteps.usda. seminars. Retrieved May 2008 from http://ezinearticles.” Midwest Agribusiness Trade Research and Information Center Research Paper 03-MRP 5. Value-Added: a product whose appeal to consumers has been increased through packaging. hands-on classes. (Southern Maryland Resource Conservation and Development Board. and even skydiving. Southern Maryland Resource Conservation and Development Board (2004). or adding a new enterprise (new product or service) to the mix. King. Direct Marketing: any form of marketing in which a consumer purchases a product or service directly from a producer. adding value to a product before it is sold. such as haunted houses. Agrieducation: formal and informal education about agriculture through signage. or production practices or services. Cultural and Heritage Tourism: the use of historic and cultural attractions to teach visitors about the past and present.” Retrieved May 2008 from ftp://ftpfc. M. farm markets. rock climbing." EzineArticles.egov. Alternative enterprising is also referred to as enterprise diversification. alternative enterprising includes the following activities: Agritourism: inviting the public onto a farm or ranch to participate in various activities and enjoy an agricultural experience.sc. and T. miniature golf. J. Nature tourism ranges from birding. “Taking the First Step: Farm and Ranch Alternative Enterprise and Agritourism Resource Evaluation Guide. pick-your-own fruits/vegetables. Agritourism enterprises include bed and breakfasts. and hayrides. camping.com/?The-Top-10-Reasons-Businesses-Succeed&id=12514. "The Top 10 Reasons Businesses Succeed. tours. corn mazes. hiking.E. processing. Nature Tourism: consumptive and non-consumptive use of the natural resources.B. horseback riding.J. and much more. Each step of adding value to a product is an alternative enterprise. “Emerging Forms of Competitive Advantage: Implications for Agricultural Producers. Aside from the production of food and fiber. etc.pdf. 2004) References Barone.